I’m 71, and didn’t know I was entitled to a state pension: Can I have it now and how much would I get? Steve Webb delivers good news to a reader…
I’m 71 and drawing a company pension. I didn’t realise that I may also be entitled to a state pension.
I ‘contracted out’ of SERPS in 1987 when I was offered a pension on a promotion which was free from contributions.
I started work and paying National Insurance continuously in 1966/7.
If I am entitled please ‘guesstimate’ how much, and also whether I can have it backdated to my pensionable date and whether I can ask for the backdated amount to be paid in one lump sum.
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Retirement finances: I didn’t know I was entitled to a state pension – can I have it now?
Steve Webb replies: I hope to be the bearer of good news.
Many people assume that once they reach state pension age they will automatically be paid any state pension that they are entitled to. But this is not the case.
It is necessary to put in a claim to get your state pension started. The good news is that if you do not claim at first and then claim later you will usually be treated as having ‘deferred’ your pension and can make up for lost time.
In your case, you reached state pension age before 6 April 2016 so you come under the old state pension system.
I will deal first with the rules for those, such as yourself, who ‘defer’ under the old system before explaining how it works for those who come under the new system.
From what you have said it seems likely that if you had claimed on time you would have had a full basic state pension.
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In 2014/15 the standard rate was £113.10 per week.
You may also have built up a modest amount of earnings-related (SERPS) pension for the period from when it was introduced in 1978 to when you opted out in 1987.
I don’t know all your circumstances, so please do not rely on the following ‘guesstimate’.
But at a very rough calculation based on the information you have given, I would say you have probably missed out on around £40,000 in state pension to date, and possibly more depending on any SERPS entitlement.
If this is correct, you now have two options.
One is to take all of this as a lump sum. You also get a very small amount of interest on top. You should note that this lump sum is taxable at whatever income tax rate you currently pay.
For example, if you are a non-taxpayer you would pay no tax on the lump sum, if you pay tax at 20 per cent you would pay 20 per cent of the lump sum and so on.
The other option is to start drawing your pension now and simply receive a (much) higher rate from now on.
For each year of deferral you get an extra 10.4 per cent, so by deferring over six years, you would get more than 60 per cent on your pension rate.
With a current basic pension rate of £137.60 per week, I would expect you to be able to draw over £200 per week going forward.
It is obviously your choice as to whether you go for a lump sum or an enhanced pension.
The enhanced pension could turn out to be worth more if you have a long retirement (because you get the uplift for longer), but the older you are, the more attractive the lump sum is likely to be.
Turning to those who come under the new state pension (who reached pension age from 6 April 2016), the situation is much simpler.
The option of taking a lump sum has been abolished and the ‘reward’ for deferring has been reduced.
When you finally take your deferred state pension you simply get an increased rate, boosted by 5.8 per cent for each year of deferral.
Your experiences are a reminder of a wider point that anyone who is over pension age and has never claimed a state pension should consider doing so, even if they think they may not be entitled.
Following a recent report I wrote on ‘missing pensioners’ – people over pension age with zero pension – I have heard from people in diverse circumstances who all assumed they were not entitled but who have actually been missing out on pension, in some cases for years.
You can read more about this issue here.
Ask Steve Webb a pension question
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at firstname.lastname@example.org.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
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